I recently read the article, Student loans a hard less in the National Post, financial section, Saturday, June 4th, 2011 written by Mary Teresa Bitti.

She talked about the plight facing our student market, both today and in the future. I will summarize the article for you. I will then focus on one suggestion by another author, Patricia Lovett-Reid, who wrote the article the same day, side-by-side, which says, “Do a cost-benefit analysis of your education“. I will first summarize the issues and then present ways you can potentially avoid this.

Summary of Issues:
Nearly two million Canadians have students loans. That debt is now worth about $20 billion, including federal and provincial loans as well as personal debt in the form of credit cards, family loans and lines of credit, all used to finance post-secondary education. That number is only set to grow as student loans owed to the government of Canada alone increase by $1.2 million a day. At that same time, the amount of unrecoverable student-loan debt now sits at $149.5 million.

According to David Molenhuis, chairman of the Canadian Federation of Students in Ottawa, states, “People are finding it more difficult to make payments, budgets are becoming more strained and we are seeing more reliance on food banks and the use of emergency bursaries offered by student unions.”

He says that “we have an entire generation of people who now more than ever have to complete some form of post-secondary education just to get a job interview, with more than 70% of all new jobs requiring some degree or diploma. We are on the verge of bankrupting a generation before they even enter the workplace.”

One problem is the dramatic increase in tuition fees and increase in borrowing rates. The number of those borrowing will grow due to young people opting to stay in school longer and continue their education due in part to a tough job market.

By 2009 the average debt university graduates was $26,680.

What is the Answer?
In order to be proactive, as the parent and/or future student making the decision you need to be aware and plan a path and finally, ask yourself, “how much will this cost me?”. This path will take twists and turns so be flexible. This will be more of a guide.

Approximately 75% of a graduating high school class will go on to university. But when asked how many of those students have talked with their parents about how they are going to pay for their education, many of those students had no response. The students know that there is a definite competitive advantage for those graduating from a post-secondary institution so much so that the difference in earning between a college/university and high school graduate was 19.3% for men and 20.2% for women.

One of the barriers to post-secondary education is the upfront cost. For those with “just borns” or very young children, RESPs are an excellent savings vehicle for this as the federal government’s Canada Education Savings Grant provides an incentive of up to $7,200.

Question: What happens to those high school students who have every intention of getting a post-secondary education but no plans of how to pay for it?

The decision-making process on whether to attend post-secondary requires the same discipline we apply to investing: Undertake a risk/return assessment.

Students and their parents need to start with an honest conversation about the value of the education weighed against the potential debt:
* How much is too much?
* When there are multiple degrees involved, at what point does the cost of education outweigh the potential return on investment?

The author quotes Stephen Covey from his book, The 7 Habits of Highly Successful People, “begin with the end in mind”.

Students and parents need to ask:
* What is the goal?
* Do potential students need a university degree to pursue their passion, or would a technical diploma be just as useful?
* Can the goal be met while living at home instead of living on campus?
* Are there scholarships or bursaries available to help with funding?
* Would a gap year help to finance costs?


Finally, looking critically at how the debt will be managed is key. Yes, education is good debt, but it is still debt and needs to be managed and carried.

This should be the first priority for a student upon graduation – dealing with your debt. The same premise that works for us when we invest – compounding interest, WORKS AGAINST US WHEN WE OWE MONEY AND HAVE DEBT. Left unchecked, it can take decades to pay off student debt which can impact obtaining additional credit in the future: home loan, line of credit, increase in credit card and so on!

Note, only those qualifying student loans received under federal and provincial government programs can be claimed as a deduction on their tax return – this is NOT SO for personal loans or line of credit. A debt is a debt and remains on your personal balance sheet.

While some argue that it is not imperative to retire your student loan as soon as you can I disagree. Retiring this shows that you have taken your accountability and responsibility to get rid of debt so that you can begin to create your net worth. For those who want to risk investing their money to get a higher return than the interest, take a chance that this can reverse at any time. Just look at the U.S. housing market. People took on tremendous debt to buy homes that they believed will grow in value and the money owing will be less. Well, the market collapsed and many people owed more than the value of their home. Is the risk worth it?

Take the time to make a critical analysis to ensure the right choice for you is made based on the student’s long-term goal and ability to retire the associated debt.

Going back to the other article, is says that Canada does not have a national vision for its post-secondary education system. We need to take back our power and make choices that force each one of us to be accountable and responsible. Right now the government loans are at 8%, much above the current lending rate. Do not put yourself in a compromised position and one that will lead to crippling compounding debt. Graduation should be a time for the graduating student to begin his/her life and create their individual wealth.

Sit down, ask questions, evaluate, and then make your decision.

Good luck!

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